For Immediate Release
Chicago, IL – March 18, 2013 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Wells Fargo & Company (WFC), The Bank of New York Mellon Corporation (BK), U.S. Bancorp (USB), Bank of America Corporation (BAC) and Citigroup Inc. (C).
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Here are highlights from Friday’s Analyst Blog:
Fed OKs Banks’ Capital Plans
After the release of the Dodd-Frank Act supervisory stress test 2013 (DFAST 2013) results last week, the Federal Reserve came up with the approval of capital plans of 14 financial institutions out of 18 in the Comprehensive Capital Analysis and Review (CCARF). Two banks have received approval subject to certain conditions, while the capital plans of the other two have been rejected.
The Fed’s approval of capital plans for most of the major U.S. banks reflects stability in the banking system to a great extent.
The banks now have the privilege to increase dividends and buy back shares. Amid concerns that banks might not have sufficient capital to counter another financial crisis, they were asked to submit their capital plans to the Fed. It was intimated to these banks that payment of higher dividends will be restricted if they fail to meet the requirement of 5% ratio of core capital to risk-weighted assets among other requirements.
Root of the Capital Rules
Currently authorized under the Dodd-Frank financial-services law, the stress tests were first introduced after the 2008 financial crisis. During this economic downturn, big financial institutions like Lehman Brothers and AIG collapsed and several other big banks were on the verge of a collapse. Such a situation compelled the U.S. government to infuse billions of dollars into credit markets and save the entire financial system from crumbling.
Moreover, the first CCAR was conducted by the Fed in early 2011. Notably, in Nov 2011, the Fed adopted the capital plan rule under which bank holding companies having consolidated assets of $50 billion or more were asked to submit annual capital plans to the Fed for review. As per the rule, banks need to include their internal processes for evaluating capital adequacy, capital actions including common stock issuance, dividends and share repurchases along with premeditated capital actions over a nine-quarter planning horizon.
The Fed’s latest stress test scenario projections include input data supplied by the 18 banks participating in DFAST 2013 and models created by the regulatory staff and evaluated by a group of Fed economists and analysts. These models were developed with the intention to inculcate the impact of the macroeconomic and financial market factors that are included in the Supervisory Stress Scenario and distinctive factors of the banks’ loans and securities portfolios, trading as well as other factors affecting losses, revenue and expenses.
Further, as per the Dodd-Frank Act, bank holding companies participating in the Fed’s stress test rules have to conduct two company-run stress tests each year. Moreover, they have to publicly unveil a summary of the results of the company-run stress tests conducted under the strictly adverse scenario given by the Fed.
Wells Fargo & Company (WFC), The Bank of New York Mellon Corporation (BK) and U.S. Bancorp (USB) are among the major banks that have received clearance from the Fed to raise their dividends or repurchase shares.
Another major bank, Bank of America Corporation (BAC), which pays a quarterly dividend of only a penny, received a nod for the repurchase of up to $5.0 billion of common stock and the redemption of approximately $5.5 billion in preferred stock. However, BofA’s capital plan did not include a dividend hike.
Notably, Citigroup Inc. (C) which failed last year’s stress test received the Fed’s approval for $1.2 billion worth of share repurchases through first quarter 2014. This would definitely boost shareholders’ confidence. However, the company did not request a change in its dividend levels and currently pays a quarterly common stock dividend of 1 cent per share.
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